Hostile to Business, Even Harsher to Charities

The first thing that jumped out at me with Obama’s latest tax scheme was its impact on my business. We’re a manufacturing and distribution company that keeps thousands of parts in inventory. Many years ago, we implemented LIFO to account for our inventory.
LIFO literally means “Last in, First out,” and its advantage is in increasing the cost of goods sold, which lowers EBITDA. Why would you want to do that? Lower profit equals lower taxes, of course. LIFO is a useful hedge in times of inflation, when your suppliers prices are constantly on the rise. If you sold an item for $10 after the most recent shipment cost $8 each, you would recognize a $2 gross profit on the item. In FIFO (first in, first out), maybe the item cost $7.50. Thus, you would have to recognize a $2.50 profit. Assuming a 35% tax rate, you would pay 70 cents in taxes in the first scenario, and 87.5 cents in the second scenario.
I’m sure no one is wowed by a difference of 17.5 cents. If only all businesses only had revnues of $10! Imagine a small manufacturing company of $10 million annual sales and a 6 percent increase of costs. All of a sudden, your cash flow decreases by $175,000 per year, or 1.75%. This is also three $60,000 a year jobs. “Big Oil” (yes, one of the causes of great evil in the world; also one of the causes of the great technological advances of the past century) is to blame. Their accounting types have had them on LIFO since the 1970s oil shocks. It benefited them when oil was trading at $100-plus a barrel. These days, LIFO has done little but help keep retail prices down.
The President expects to raise $18 Billion in revenue from this change. That is, of course, assuming that manufacturing doesn’t just fold up its tent and go home.
Obama is trying to slap business into shape. Meanwhile, he has decided to make sure charities get put back into their place too. Obama has proposed that charitable deductions be reduced from 35 percent to 28 percent for those making $250,000 or more.
Now, the New York Times quotes Eli Broad as saying his charitable gifts will remain unchanged. That’s nice. Broad is worth $1 Billion and makes hundreds of million per year. Should his income sit at $100 million, that would put his income at only 400 times that of a $250,000 a year earner. Among those who make $250,000 per year would that extra 7 percent make a difference? Absolutely.
Ah, the taxpayers have a lot of money. Screw ‘em.